SMSF LOAN FAQ

Yes, you can borrow to invest in property.o.

You can purchase either residential or commercial property within your SMSF. Your SMSF Trust Deed will state your borrowing powers and you investment strategy should reflect that you are borrowing to invest in property. Your investment strategy should be updated regularly.

No, SMSF Loans are not like a home loan or investment loans. SMSFs are a ‘Trust’ and in order to purchase property with a SMSF, a “Limited Recourse Borrowing Arrangement” is required.

A Limited Recourse Borrowing Arrangement (“LRBA”) is a unique loan structure where the only SMSF asset that the lender (or any other party) has recourse to is the property that was purchased using the loan, if the fund is unable to meet its loan repayments.

A LRBA requires a security trustee (“bare trustee”) to beneficially hold the asset on behalf of the SMSF. The ‘bare trust’ arrangement recognises that the asset is to be held by the security trust until the debt is repaid, at which point legal ownership can pass to the SMSF.

No, a LRBA can be used to purchase a ‘single acquirable asset’. Therefore, each property requires a separate bare trust.

Generally before the contract of sale is signed. In certain states such as Queensland, the bare trust is required to be executed before the contract of sale is signed. Further, if you are using a corporate trustee, the bare trustee company will generally be included on the contract of sale. Therefore the bare trustee company should be incorporated before the contract of sale is signed.

Redwood Advisory provides a specialist bare trust service for a fixed fee of $1925. Read more in relation to bare trust.

Once an application is received by Redwood Advisory, your SMSF will be set up in one business day.

Once an application is received by Redwood Advisory, your SMSF will be set up in one business day.

No, under the ‘single acquirable asset’ principle, each property requires a separate bare trust and separate loan.

As a general rule, a SMSF cannot borrow. However, in 2007, S67A of Superannuation Law was introduced to allow borrowing in limited circumstances and specifies a number of requirements to be met to ensure compliance with Superannuation Law. This included the ‘single acquirable asset’ requirement and ‘limited recourse’ loan.

Yes, to our knowledge all lenders with a SMSF product require a personal guarantee.

Loan to Value Ratios will differ for individual and corporate trustees. For flexibility and asset protection, a corporate trustee is preferred. Further, certain lenders will lower the LVR for individual trustees, i.e. from 80% max lowered to 72% max.

Redwood Advisory recommends a conversion to corporate trustee prior to purchasing property in a SMSF. Read more

The maximum LVR for residential property is 80%. For example, if I buy a property for $400,000, your maximum loan amount is $320,000. Therefore, you will require $80,000 in SMSF cash to complete a purchase plus acquisition and loan costs.

The maximum LVR for commercial property is 70%. For example, if I buy a property for $400,000, your maximum loan amount is $280,000. Therefore, you will require $120,000 in SMSF cash to complete a purchase plus acquisition and loan costs.

Generally, interest rates for SMSF loans are more expensive than standard home loans and investment loans. An SMSF is a Trust, and requires a “limited recourse” loan and therefore lenders generally offer a loan at a higher rate than standard home or investment loans. Refer to our SMSF Rates Matrix for detailed information on current SMSF Loan interest rates.

No. A number of lenders have recently exited the SMSF Loan market including NAB, AMP and The Rock due to a crackdown by APRA in relation to investment lending. Specialist lenders such as La Trobe Financial and Resimac continue to offer SMSF Specialist products.

Refer to our SMSF Rates Matrix for detailed information on current fees across known SMSF loan products. Generally the following fees will apply for a SMSF Loan (refer to each lender for a complete list of fees and charges):

• Application Fee
• Valuation Fee
• Legal Fees
• Monthly Administration/Service fees
• Early repayment fees

Yes, this is referred to as a related party loan. Read more

Yes, pre-approval is recommended to determine your borrowing power.

Once an application is submitted to a lender, pre-approval will generally be received within two business days.

Redwood are mortgage brokers – we do not charge to obtain pre-approval, so its FREE.

Yes, however only certain lenders offer an offset account.

An offset account is a valuable feature of a SMSF loan as the cash held by the SMSF will offset the loan balance – reducing monthly interest repayments. Read more

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Yes, before you purchase property, your SMSF should be established and therefore, your SMSF should be established before you apply for a loan.

Generally lenders will charge a early repayment fee, refer to each lenders terms and conditions for early repayment fees and charges.

Your repayments will be made from the SMSF cash balance.

If you cannot find a tenant for your property, you will be required to service the loan repayments from either your SMSF cash reserves or contributions made to the fund. It is important to ensure you have a sufficient cash buffer after the settlement of the SMSF property.

It depends. Certain lenders will impose a liquidity requirement before settlement. For example, St George requires 10% of liquid assets at settlement. It is essential you consider your required cash reserves prior to purchasing SMSF property to ensure you have sufficient funds at settlement and in case your SMSF property is not tenanted immediately.

Not all banks offer a SMSF Loan. A broker will have access to all SMSF lenders and generally will not charge for the service.

To ensure you do not receive double stamp duty in the future, you will need to seek advice for the name to be used on the contract of sale. The name will differ from state to state.

Yes, a deposit should be paid from the available funds of the SMSF.

Seek Advice from a qualified SMSF professional and solicitor. An SMSF specialist will ensure your purchase is compliant with Australian Superannuation Law and establish your bare trust. Your solicitor will review the contract of sale to ensure you are aware of all factors that impact the purchase i.e. car park on the same title for apartment. Read more for a due diligence checklist.

There are strict laws that apply to LRBAs. Refer to our blog for more information on the laws and regulations in relation to improvements and repairs.

Loan terms will differ between lenders. Generally a maximum loan term is 30 years. Refer to our SMSF Rates Matrix for detailed information on maximum loan terms across known SMSF loan products.